U.S. stocks opened lower, rattled by a potential trade war after President Donald Trump unleashed tariffs on Canada, Mexico and China, beginning Tuesday.
At 10:06 A.M. ET, the broad S&P 500 index was down 1.69%, or 102.33 points, to 5,938.20; the blue-chip Dow lost 1.4%, or 624.41 points, to dip to 43,920.25; and the tech-heavy Nasdaq shed 2.16%, or 423.65 points, to slip to 19,203.79. The benchmark 10-year Treasury yield dipped to 4.498%.
A 25% tariff will be slapped onto Canadian and Mexican goods, except Canadian oil which has a lower 10% levy. Chinese goods will be taxed at 10%. Trump said in a social media post the decision was made to “protect” Americans “because of the major threat of illegal aliens and deadly drugs killing our Citizens, including fentanyl.” Trump said Europe would be next.
Canadian Prime Minister Justin Trudeau countered with a 25% tariff on around $107 billion worth of American-made products. Mexico said it’s considering what tariffs of its own to enact, and China will challenge the Trump’s tariffs at the World Trade Organization, which some analysts noted will take a while.
Trump had been warning tariffs would come, but many investors believed they would be further off.
“It is perhaps not the size of the trade levies that has caught markets wrong-footed, but both the hastiness at which they will be imposed and the speed of the retaliatory response from authorities in Canada and Mexico,” said Matthew Ryan, head of market strategy at global financial services firm Ebury.
NEW YORK, NEW YORK – JANUARY 22: Traders work on the floor of the New York Stock Exchange during morning trading on January 22, 2025 in New York City. Stocks continued an upward swing opening up high a day after the Dow Jones closed up 500 points and the S&P 500 approaching an all-time high. The rise comes after OpenAI CEO Sam Altman, SoftBank CEO Masayoshi Son and Oracle Chairman Larry Ellison made an announcement alongside President Donald Trump that they will create a new company, called Stargate, to grow artificial intelligence infrastructure in the U.S. (Photo by Michael M. Santiago/Getty Images)
If the tariffs go into full effect, many economists say the global economy will slow.
“This development came sooner than we anticipated in our baseline forecast and will lead us to downgrade our 2025 global forecast,” saidRyan Sweet, chief U.S. economist at Oxford Economics in a note.
However, Sweet expects the announced tariffs won’t fully remain in place for an extended period. “Exemptions will be made, including for building materials and transportation equipment. Still, the tariffs will shave 0.7 percentage point off U.S. (economic) growth this year, and while a recession will be avoided in the U.S., Canada and Mexico will be hit even harder,” he said.
Tariffs are also expected to bring inflation, but how much “will depend on whether and how long higher tariffs persist, which retaliatory and counter-retaliatory measures are put in place, the effectiveness of tariff collections, feedback effects from global and financial conditions, and other considerations,” said Michael Feroli, JP Morgan chief U.S. economist.
With expectations for tariffs, even short lived, to increase inflation, economists said that’ll keep Federal Reserve interest rate cuts on hold.
“The resulting surge in U.S. inflation from these tariffs and other future measures is going to come even faster and be larger than we initially expected,” said Paul Ashworth, chief North America economist at Capital Economics. “Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut.”
Feroli said “even if tariffs are called off tomorrow, the increase in policy uncertainty will be hard to put back in the bottle. For the Fed, the weekend’s developments will likely reinforce their inclination to sit on the sidelines and to remain below the radar as much as possible.”
Stocks around the world fell on the news of tariffs, but there may be reason to think U.S. equities will outperform.
“All else equal, the tariffs are bad for U.S. equities but, in general, worse for those elsewhere,” said Thomas Matthews, Capital Economics’ head of markets for Asia Pacific.
Stocks are volatile, with sizeable down swings, but he said the moves still suggest to him “investors might be holding out hope for a reprieve. And Trump has since announced that he’ll be meeting with his Canadian and Mexican counterparts. It may be that he decides he has gained enough concessions to declare victory.”
Matthews was still cautious, though, warning “the flipside is that if the tariffs stick around, let alone escalate, this morning’s market moves may be just the start of greater volatility.”
In the latest round of tariffs, the auto sector is likely to get hit hard because most automakers use Mexico and Canada to manufacture vehicles and parts for the U.S. market, analysts said. General Motors shares shed 4.89% and Ford lost 3.03%. Aptiv, an auto parts supplier, declined 7.61%, and engine maker Cummins eased 2.71%.
Farmers will likely get hit because Mexico is the top importer of American corn and pork, and Canada imports billions of dollars in corn, beef, pork and ethanol from the U.S.
Other corporate news included:
Bitcoin slumped as investors sold risky assets amid a potential tariff war. The crytpocurrency fell below the key psychological level of $100,000. It was last down 1.61% at $96,108.59.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
This article originally appeared on USA TODAY: US stocks start weaker as Trump stokes trade war, global slowdown fear
